Banking News

The prospect of record low savings rates continuing is forcing many savers to review how they allocate their capital in an attempt to achieve the level of returns they have previously enjoyed. Investing in the stock market inevitably involves putting your capital at risk however there is a middle ground which continues to attract increasing interest – the structured deposit. With this in mind, we take a deeper look at this savings alternative to help understand why more and more savers are starting to see their appeal. more

With the current economic environment asking savers far more questions than it gives answers, it is good to know that there are alternatives available. We take a look at one such alternative that is proving particularly popular as savers face the harsh reality that the more traditional fixed rate savings products are failing to meet their needs. more

Millions of savers are facing the harsh realisty that there is little hope of change to interest and savings rates in the coming years. However, those with Cash ISAs do have one further option to consider – the ISA transfer. We take a closer look at why this is becoming a rising trend as well as what this could mean for those looking for the potential to improve the returns from their capital. more

With so many savers joining income investors in the hunt for high yields, being able to quickly understand and compare the numerous options available has become even more important. We therefore compare two of our most popular income investments to help understand what is driving their popularity and why they might meet your income needs. more

Fixed Rate Bond Savings Alternatives

22 November 2012 / by James Caldwell

If you are a saver looking for a good rate of interest on a fixed rate then you are in for a shock.

Since the launch of the Government Funding Lending Scheme in August this year which provides cheap money to Banks, there has been no incentive for banks to offer attractive interest rates to encourage you to save with them. Interest rates on fixed rate bonds have been particularly hit with rates on 1 to 5 year terms falling significantly in the last few months.

Impact of inflation on fixed interest returns

With consumer price inflation running at 2.70% as at end of October 2012 most tax payers will do well to find a home for their money which keeps its value in real terms. A snapshot of some of the leading providers of fixed rate bonds shows how rates have dropped over 1,2,3 and 5 years since July 2012.

Alternative options to fixed rate bonds

What is a structured deposit plan?

A structured deposit plan is a fixed term investment with a payout that is linked to the performance of an underlying asset e.g. FTSE 100

Structured deposit plans are appropriate for people who have a low appetite for risk but are willing to accept a return on the deposit that involves limited exposure to the stock market. While returns are not normally guaranteed in structured deposit plans they offer the potential for competitive rates of return over fixed term bonds. When interest rates are low they can offer investors relatively low risk exposure to market performance.

In a deposit plan money is held with a deposit taker such as a high street bank. Capital is at risk if the deposit taker is unable to meet its liabilities and repay investors. As with a savings account in the event of default of the deposit taker you have recourse to the Financial Services Compensation Scheme (FSCS) which currently covers an individual up to £85,000 per authorised institution.

What plans are currently available?

3 to 4 year term plans

Investec’s 3 Year Deposit Plan offers a fixed return of 13.5% if the value of the FTSE at the end of the term is higher than its starting value, subject to averaging. This equates to around 4.31% compound and compared to our current leading 3 year fixed rate, offers the potential for a 1.36% annual premium.

Cater Allen offer a 3¾ year Growth Plan which will return 100% of any rise in the FTSE 100 over the term, capped at 26% (gross). Depending on your view of the FTSE this also offers the opportunity to provide a higher return than would be available through current fixed rates of similar duration.

Early maturity plans

The ability to mature early is a feature which is unique to structured products. Investec’s Kick Out Deposit Plan offers a potential 4.50% per annum (not compounded) with the opportunity to mature early provided the value of the FTSE 100 at the end of each year (from year 2 onwards) is higher than its value at the start of the plan.

This means a return of 9% could be yours after just 2 years and even if the plan runs for the full 5 years and then kicks out, this deposit offers the potential for more than a 1% premium on longer term fixed rates.

Income plans

If you require income , Societe Generale’s UK Range 7 Plan 6 offers the opportunity for an attractive 7% (gross) for each year the FTSE stays between an upper and lower range based on its level at the start of the plan. This range increases each year, starting at +/- 15% in year 1, and then increasing by +/- 5% thereby providing a wider range each year within which the FTSE can move. If it moves outside the range, the income is not paid for that year. The plan has a 6 year term.

Please note

Since the returns are not guaranteed these savings plan alternatives are not designed to meet the entire needs of every saver. However, what they do is provide a defined return over a defined term compared to other options currently available.

As with any savings product, there is always a trade off for receiving a higher rate of return and with structured deposits, this is made absolutely clear at the outset. The two main downsides are that the deposit taker may go into liquidation (as with any deposit) and that the payout mechanism within the plan does not occur so you only receive your capital back.

This has to be balanced and compared to the upside which is inevitably a greater return than could be achieved by putting you money away for the same length of time with a similarly rated credit institution.

3% for each year if the FTSE 100 finishes higher than its starting value

Opportunity to mature early at year 3, 4 or 5

Capital protected

Short/medium term alternative to fixed rates

Available for Cash ISAs, ISA transfers and non-ISA

Covered by the FSCS (Financial Services Compensation Scheme)

Limited offer - deadlines apply. May close early if oversubscribed

Plan designed to be held for full term

Arrangement fee applies

Returns not guaranteed. You may only receive a return of your original capital

Important Information: Structured deposits offer you the potential to earn higher returns than you would with a regular savings account. Your returns are based on the performance of an index or commodity. If the investment does not perform well you may receive no income or capital growth, but you can be confident that your capital will be repaid. You have no access to your deposit during the term of the account, typically 3 to 6 years but your original capital will be repaid in full at the end of the term. In the event that the deposit taker is unable to repay your initial investment and any returns stated you may be entitled to compensation from the Financial Services Compensation Scheme (FSCS) depending on your individual circumstances.

Fair Investment Company
is rated 4.46 stars by Reviews.co.uk based on 107 merchant reviews